Dollar Rallies After Fed Hikes Discount Rate

The dollar extended its rise Friday, a day after the Federal Reserve bumped up the rate that banks must pay for emergency loans. Analysts said the rate hike was a sign of the central bank's confidence in the financial sector.

The euro briefly slid below $1.35 for the first time in nine months before paring its losses in New York.

The euro traded as high as $1.51 in November, but worries over big deficits in Greece and other European countries has undermined the stability of the currency used by 16 countries.

The euro fetched $1.3599 by late New York trading Friday, down from $1.3617 late Thursday, before the Fed announcement. It broke below $1.35 in Asian trading overnight, bottoming at $1.3444, its lowest point since May 2009.

The Fed said it was normalizing emergency liquidity measures, not trying to raise borrowing costs for companies and consumers. The central bank stood by its pledge to keep interest rates at their current range of near zero for an "extended period."

A higher interest rate, or the expectation of higher rates, can prompt a shift of funds to the dollar. Analysts noted that many investors were taking the Fed's move as a signal that it would hike rates faster than other central banks.

But the Fed's move late Thursday, lifting the discount rate by one-quarter point to 0.75 percent, is unlikely to mean higher interest rates since the economy remains weak. Instead, it suggests that the Fed thinks the American financial sector is on the mend, said Brian Dolan, chief currency strategist at Forex.com.

"We're past the crisis," Dolan said.

There was little evidence that the Fed would feel immediate pressure to raise rates that would affect American shoppers and businesses. On Friday, the government said consumer prices rose a scant 0.2 percent last month, while core inflation that excludes food and energy dropped 0.1 percent. That hasn't happened since December 1982, and gives the Fed room to leave rates very low for now. Raising interest rates is a tool in fighting inflation.

In other trading Friday, the British pound tumbled to $1.5464 from $1.5627 late Thursday after falling to a nine-month low of $1.5350 earlier. Meanwhile, the dollar rose to 91.71 Japanese yen from 91.34 yen.

The dollar was also higher against currencies of nations that export commodities to the United States. The Australian and Canadian dollars fell as the price of crude and other commodities leveled off.

The dollar also rose versus the Nordic currencies and many Asian currencies.

The dollar extended its rise Friday, a day after the Federal Reserve bumped up the rate that banks must pay for emergency loans. Analysts said the rate hike was a sign of the central bank's confidence in the financial sector.The euro briefly slid below $1.35 for the first...